What is GameFi? Why the mass adoption is still slow?
Table of contents
- Introduction to GameFi?
- What do you mean by GameFi?
- Present Scenario of GameFi
- Features of GameFi
- How does GameFi Work?
- Here are a few similarities among GameFi projects.
- The History of Gaming
- How to Get started with GameFi?
- What are GameFi tokens used for?
- How are GameFi initiatives funded?
- The GameFi tokenomics
- Are GameFi initiatives regulated?
- Understanding Tokens and Their Purpose
- Overlap with regulations around Gambling
- Why the adoption is Slow of GameFi?
Introduction to GameFi?
Imagine a place where your gaming skills aren’t just about scoring headshots or leveling up your character; they’re about earning you some serious coins.
Can you Imagine a world in which you can make money just by playing a video game. Not fake, in-game money, but the kind of money that helps pay the bills and keeps food on the table.
And imagine all the assets in a game — the characters, the outfits, the weapons — could be bought and sold in the real world.
Yep, you heard that right. GameFi is where your mad gaming skills meet the thrill of the financial arena.
And let me tell you, the GameFi craze is just as wild as it sounds.
So, whether you’re a seasoned gamer looking to turn your skills into a money-making machine, or a finance aficionado itching to break into a world where avatars hold as much value as assets, GameFi welcomes all.
It’s like a grand digital carnival where the roller coasters are NFT price fluctuations and the cotton candy is the sweet taste of victory in both gaming and finance.
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What do you mean by GameFi?
The term ‘GameFi’ is a combination of the words ‘game’ and ‘finance’. It was first coined in a 2020 tweet by Andre Cronje,the CEO of Yearn Finance.
Basically, GameFi mixes blockchain technology ,non-fungible tokens (NFTs) and game mechanica to create a virtual environment in which you may participate and receive tokens.
Well, it’s where you get to play-to-earn in ways that could make your grandma’s jaw drop. Picture this: you defeat a monstrous boss in a virtual world, and bam! You’ve earned yourself a shiny new NFT sword that’s not just for show.
Until recently, video games were housed on centralized servers, giving developers and publishers the rights to everything within their games.
This meant that players had no actual ownership or control over any of the digital items accumulated over hours or years of gameplay.
These items range from weapons and costumes (also known as skins) to avatars and virtual lands.
Very few of which had any value outside of the game.
As such, there was no real way for players to get compensated for their time spent online or share in the value of their earned in-game assets.
Without following the route of professionalism such as vlogging,Twitch streaming,or playing competitively in tournaments.
However, you can obtain in-game rewards by completing tasks and progressing through various game levels.
Unlike traditional in-game currencies and items, these rewards have measurable value outside of the gaming ecosystem.
For example, game items awarded in the form of an NFT or tokens for achievements can be traded on MFT marketplaces and crypto exchanges;hence earning the sector the ‘play-to-earn’ moniker.
It is important to note that ‘play-to-earn’ is the popular nomenclature, but playing in GameFi does not come without risk.
Including potentially high initial costs that a player might lose or fail to recoup.
it’s an actual tradable asset worth more than your neighbor’s vintage comic collection.
And let’s talk about NFTs for a sec. Non-Fungible Tokens are those digital darlings that have taken the art and entertainment world by storm.
They are now storming the gaming scene. Your in-game achievements, rare skins, and even that one-of-a-kind victory dance you do when you win.
It’s all getting tokenized! It’s like the universe decided to turn your gaming glory into blockchain bling.
But hold onto your helmets, folks, because the GameFi wonderland has more than just NFTs.
DeFi (Decentralized Finance) is in on the action too. Remember all those times you wished you could put your in-game gold to better use?
Well, say hello to yield farming, liquidity pooling, and all sorts of financial wizardry that lets you grow your virtual treasure into some very real riches.
Now, I know what you’re thinking: “Is this just another fleeting trend?” Trust me, I’ve seen fads come and go faster than a level one character in a PvP zone.
But GameFi feels different.
It’s like the meeting point of two unstoppable forces, gaming, a pastime enjoyed by billions, and DeFi, the disruptor that’s changing how we think about money.
So, whether you’re a seasoned gamer looking to turn your skills into a money-making machine, or a finance aficionado itching to break into a world where avatars hold as much value as assets, GameFi welcomes all.
GameFi is a ride you won’t want to miss. The next level of play has arrived, and it’s got your name written all over it in neon letters.
Get ready to level up, stack those tokens, and show the world that it’s not just about the game in this realm.
Decentralized gaming, better known as GameFi, has been quickly identified as one of the clear use cases for blockchain technology. Which has yet to see mass adoption.
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Present Scenario of GameFi
To put things in perspective, Fortune Business Insights estimates that the global gaming market size was valued at $249.55 billion in 2022 and will grow from $281.77 billion in 2023 to $665.77 billion by 2030.
In contrast, blockchain gaming according to Markets and Markets, accounted for only $4.6 billion in 2022 and is expected to grow to $65.7 billion by 2027.
Features of GameFi
Despite low adoption rates blockchain technology offers you greater control through decentralization.
Thereby, allowing you to set the game rules, mechanics and upgrade features and engage in distributed voting, mechanisms to determine which games should be added to the platform.
GameFi’s not just about NFT’s or DeFi, that daring disruptor of the financial universe, wants in on the fun too.
Remember when you wished you could turn your gaming gold into some real-world treasures?
Buckle up, because now you can dive into yield farming, liquidity pooling, and more financial tricks than a magician’s sleeve to grow your virtual stash into some very tangible goodies.
Additionally, as gamers spend more time playing video games, the ability to own in-game assets will allow you to earn cryptocurrency that can be redeemed, making gameplay far more valuable from an outsider’s perspective.
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How does GameFi Work?
GameFi? It’s got that special sparkle. It’s the collision of two unstoppable forces: gaming, adored by gazillions, and DeFi, the trailblazer shaking up the money game.
Almost all blockchain -based games are accompanied by a corresponding in-game currency,marketplace, and token economy.
Like traditional gaming, there is no centralized authority in control. Instead, GameFi projects are all usually managed and governed by the community,with players even able to participate in decision-making.
Here are a few similarities among GameFi projects.
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a. Blockchain Technology
GameFi projects run on blockchains distributed ledger. This keeps track of player ownership while ensuring that all transactions are transparent.
b. Play-to-Earn Business Model
In contrast to traditional gaming, where you play to win , GameFi projects adopt a P2E model.
These games incentivise players to play and progress within the game by offering rewards that have measurable value outside of the game.
These usually come in the form of in-game cryptocurrencies or NFTs.
c. Asset Ownership
In traditional gaming, in-game purchases are non-transferable investments locked within a single game. With P2E, you own your in-game tokenized assets.
In most examples, you can exchange them for cryptos and,ultimately,fiat.
Assets can range from a suit of armour to a plot of virtual land, which are tokenized on the blockchain.
d. DeFi Solutions
Many GameFi projects may also include decentralized finance(DeFi) elements, such as yield farming,liquidity mining, and staking.
These provide additional avenues for you to increase your token assets.
The History of Gaming
From Play-to-Play to Play-to-Earn
Until recently,games were split into two main models of monetization ;play-to-play and free-to-play.
However, a new model has started to emerge, dubbed ‘play-to-earn’.
“The First Video Games Were Paid Games or Pay-to-Play (P2P)”
It all started with arcade games back in the early 1970s. Arcade video games worked off a pay-per-play model.
Like the name suggests,games were monetized per play. Arcade goers would have to stump up a small amount to enjoy one or two rounds of a game.
This was hugely profitable. By 1982, the arcade video game industry was generating an annual revenue of $8 billion. Thereby, surpassing that of pop music $4 billion) and the Hollywood box office $3 billion.
When home consols arrived on the scene in 1972,game developers saw a need to introduce revenue model; single payment.
Unlike pay-per-play, which requires ongoing microtransactions that a gamer would be less willing to make ,this new method of payment meant that players could simply pay a one-off sum.
In order to gain total access to a game. Examples include FIFA and Super Mario Brothers.
In the late ’90s, subscription model games that require the player to pay regular subscription fee in order to maintain access to all parts of a game were introduced.
This method was especially popular with MMORPGs (massively multiplayer online role-playing games) like Tibia,Runescape,and World of Warcraft.
Then came expansion packs and downloadable content ,where you would be enticed to spend extra so as to unlock premium items like cosmetics/’skins’,additional maps and stprylines,superior weapons and in-game advantages.
Free-to-Play Games (F2P)/Freemium: The next chapter of Gaming
In this kind of model you have access to the core of the game free of charge,but you are encouraged to spend money on enhancements,such as additional lives,unrestricted playing time.
As well as, digital currency,personalized avatars and special cosmetics,extra content,and an ad-free experience.
During the early days of the Apple App Store, which launched back in July 2008, the majority of early mobile games like Angry Birds,for example were based on the traditional premium model that is paying for the game up front.
In October 2009, the App Store introduced in-app purchases for free apps, enabling you to purchase digital items, such as in-game currency and resources to enhance your experience.
Soon after, popular mobile apps like Angry Birds, Temple Run, and Plant vs. Zombies would swItch from the premium model to what we call “freemium”.
Video games like DOTA 2 and Team Fortress 2 quickly followed suit. Thereby, adopting the free -to-play business model while offering purchasable cosmetics.
Other popular F2P games include Fortnite, Call of Duty, Warzone, and Apex Legends.
Today, well over 90% of apps in the App Store and on Google Play are free.
Essentially, what these two monetization models have in common is that, in order for you to make money off of playing P2P or F2P games, you would typically need to either stream your gameplay or win eSports tournaments.
In short, only very select people are able to monetize can monetize time spent online playing P2P and F2P games.
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Play -to – Earn (P2E) and the advent of GameFi
In 2017, Ethereum launched Cryptokitties,the first widely recognized blockchain game.
Shortly after a number of other decentralized blockchain games were launched. Including Ether Shrimp Farm, Ether Cartel,and Pepe Farm.
These games use a P2E economic model, which provides you with the opportunity to monetize your time spent playing games.
However, it was not until the global pandemic in 2020 that the P2E model really took off.
With many people homebound due to lockdown restrictions. P2E games offered token-generating opportunities for you.
Before P2E, the economics in games generally flowed from the player to the publisher.
With the P2E model, however, you are compensated for your efforts and rime spent online with digital assets that have value outside of the game . And which may appreciate over time.
Because these assets are stored on a blockchain, they are owned by you, not the game developer.
Its important to note that the value of digital assets is volatile and may also depreciate over time.
In P2E games,in-game assets are usually represented as NFTs,which you can obtain through-in-game advancement and gameplay such as taking part in specific tasks, challenges,dues and competitions.
The advantage of these NFTs is that they can be exchanged for cryptos that can then be traded for fiat on third-party exchanges. Thereby, spearheading a whole new world of digital economies.
Examples of popular P2E games include Axie Infinity,The Sandbox,and Decentraland.
Unlike traditional video games, where developers control all in-game economics, in P2E games you have ownership and control over your digital assets.
You can even contribute to game decisions and help shape the future of the game through the accumulation of tokens.
Take Axie Infinity, for example an Ethereum-based game that rose to prominence in 2021 and became the World’s most Googled NFT in March 2022.
In Axie Infinity you collect, breed, train and battle creatures called “Axles”. In conventional in-game items, each Axie can be traded on the game’s marketplace for real money.
For context, the most expensive Axie ever sold was for $820,000. This game has two native cryptocurrencies.
a. Axie Infinity Shards (AXS)- which can be bought & sold on exchange
b. Smooth Love potion(SLP)- Which is what you earn through playing the game.
AXS is also used as governance token, allowing token holders to vote on the future development of the gaming experience.
Initial cost is still a still a huge barrier for many, especially as the vast majority of blockchain game players currently hail from developing countries.
This hurdle has led to the rise of gaming guilds . Which are platforms that enable NFT owners to lend out in-game assets (NFTs) in return for a share of the assets generated.
Which reduce the considerable upfront costs for would-be-participants.
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How to Get started with GameFi?
Create a Crypto Wallet
In order to make in-game transactions and store the virtual currencies and NFTs collected during gameplay,you will need a crypto wallet.
There are many different wallets available, like the Crypto.com DeFi Wallet , but most games demand the use of specific wallets. Be sure to visit the game’s official website to see which wallets it supports.
Connect the Wallet with the Game
Previously, traditional games used to require a username and password,blockchain games use your crypto wallet as your account.
To avoid scams, only use wallets downloaded from official app stores that are explicitly linked to the wallet’s official website.
Further, as an additional security precaution,its recommended that you use a different wallet for each game you play.
Add Funds to Your Wallet
You will need to pre-fund your crypto wallet with a compatible crypto in order to purchase any starter items. Which are characters, or native tokens required to play the game.
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What are GameFi tokens used for?
Within the gaming world,game finance or GameFi, is giving rise to NFT marketplaces for selling game-in assets such as hard to obtain in-game weapons and props with real money.
Or for swapping them with another player. Thereby, giving proprietary and proof of ownership to the game wins.
These weapons can also be leased and rented to other players for a fee and the objects won in one game can be incorporated into other games.
Outside the gaming world, GameFi NFTs can be used as surety for DeFi lending protocols and are permissionless and are permissible for staking, liquidity mining and yield farming.
An increasing number of NFT gamers are establishing an on-chain metaverse by selling virtual lands as NFT’s.
And are successfully integrated with cryptocurrencies. Thus, giving real world interoperability for the value of their time-spent in-game.
Depending upon its trajectory, GameFi tokens may be used for ownership, speculative trading or may even pave the way for more decentralized metaverse which may not be owned by one large corporation.
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How are GameFi initiatives funded?
First, GameFi thrives on team expansion and game development user acquisition. Additionally, like initial coin offerings (ICOs) or an initial public offering (IPO).
GameFi initiatives raise funds through initial decentralized exchange offerings (IDOs), funded by venture capitalists.
Most of these consist of various token allocation rounds made up of public and private funding with adequate provision for marketing,gaming incentives and ecosystem development.
Another mechanism for raising funds for blockchain games is initial gaming offering (IGO) ,which gives gamers timely access to games while helping developers raise more funds for the gaming project.
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The GameFi tokenomics
Once the Games are functional,GameFi projects create their own tokens and gaming rules around them.
Either through a utility token or a governance token which also needs to be earned creating revenue model for the GameFi.
It can be based on one token and the same token may be used to purchase gaming avatars through their utility function as well as distribute rewards to players through their governance function.
Which gives token owners the right to propose and vote on future improvements ,game policies etc.
Some gamers may have separate tokens for in-app purchases and reward distribution.
While,some may also operate a three-token economy with another token for incentives.
Since most of these games operate on Ethereum blockchain,a gamer needs to put in either or convert fiat money top the crypto to participate in the game.
Ethereum scalability limitations leads to many GameFi initiatives creating their own separate sidechains.
Additionally, fees collected in these games may land in decentralized autonomous organization (DAO) treasuries and be transmitted to DeFi strategies.
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Are GameFi initiatives regulated?
Currently, there are no specific regulations around GameFi as there is ambiguity around who should regulate GameFi. Primarily due to its unique features, mode of business and overlap with existing regulatory frameworks.
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Understanding Tokens and Their Purpose
The recently proposed Responsible Financial Innovation Act in the U.S. intends to categorize a “majority” of cryptocurrencies as securities.
As per the proposed draft, any token invested with “an expectation of profit” is likely to be classified as a security so would all the projects that stimulate the liquidity pools.
Which will impact the DeFi ecosystem as well as GameFi projects.
This is because if a GameFi token is used,for example,to buy special access rights in a blockchain -based game with the intention of later realizing income out of it or profiting from it then it may likely be classified as a security and may attract the proposed regulations.
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Overlap with regulations around Gambling
Some jurisdictions in the U.S. prohibit gambling,including raffles which are conducted quite frequently by players in GameFi ecosystem.
It may also face restrictions due to its reliance on virtual currency businesses such as crypto wallets,exchanges and trading of tokens which may themselves be regulated or banned.
On the other hand, many countries have introduced tax on transfer of virtual digital assets.
Hence the GameFi participants may be required to pay taxes when they make in-app purchases ,are rewarded in-game tokens or when they convert/ transfer their tokens.
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Why the adoption is Slow of GameFi?
While there has been a lot of interest in GameFi till last year,the crypto winter and many other factors appears to have slowed its growth.
There is a resistance to blockchain-based games from the gaming community particularly when it comes to game mechanics and NFT’s.
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a. Game Mechanics
Currently, and partly due to its name ,the primary drawback of blockchain games might be described as money making.
A fact that some gamers tend to abhor. If GameFi is to go mainstream,it has been suggested that the focus will need to shift from the crypto first and game second mentality that is currently so prevalent.
To one that puts the gaming experience first. If the playability of the game is not of a high enough standard to attract and retain gamers without a financial incentive,then it has very little chance of converting traditional gamers and engaging outside of crypto.
A common criticism of GameFi’s detractors suggests that the incorporation of NFTs in games is just another shameless cash grab.
As gamers have long been subjected to various monetization experiments,from downloadable content to randomized loot boxes. All with varying degrees of success.
From the perspective of some gamers, NFTs are simply a new way for developers to dree up the very same microtransactions that gamers have loathed for decades. Without actually bringing any real value to the game.
There are also concerns that, on top of being expensive,these NFTs will deliver unfair in-game advantages,further diminishing the entire gaming experience.
Many GameFi enthusiasts chalk this rather negative outlook down to a gross misunderstanding of blockchain technology. And how it works.
As with crypto in general ,one of the biggest roadblocks is a lack of understanding.
To address this and assuage any concerns its integral that developers invest time and energy into improving not only the gaming mechanisms , but the public understanding of blockchain technology and GameFi.
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So whether you’re a gaming guru ready to transform your skills into a cash carnival, or a financial fanatic itching to explore a world where avatars are as valuable as gold bars, GameFi’s got a spot for you.
It’s the ultimate digital carnival where the roller coasters are the rise and fall of NFT prices, and the cotton candy?
Currently, many games focus on the underlying technology first and the fun aspect second.
If you look at many first -generation blockchain games on the market, its clear that developers were more concerned with the crypto – earning aspect of their games.
Thereby, giving you multiple opportunities to participate in crypto-collecting activities at the expense of actual gameplay value.
With an estimated 3.24 billion gamers across the globe,there is a huge opportunity for growth in the emerging GameFi sector.
In 2021 alone, investors poured over $3.6 billion into crypto gaming startups. Thereby, making a 2021 landmark year for the burgeoning industry.
For many industry commentators ,gaming represents the most likely route to widespread blockchain adoption.
This is an opinion shared by a DappRadar x BGA Games report. Which found the blockchain games attracted 1.22 million unique active wallets in March 2022.
If blockchain games can provide gamers with equal value or fun as traditional games with the added potential for earnings then there really is no limit to GameFi’s potential.
Wherever you stand on the topic of HameFi ,there are no two ways about it. It was one of the hottest crypto sectors that came out of 2021. It is one to keep an eye on.
We must be mindful how regulations around cryptos evolve and how their design may direct innovation within GameFi.
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GameFi is seen as a way to bring new users into the crypto space,as it combines elements of gaming with finance. There are already several GameFi projects in development, including Axie Infinity, Aavegotchi,and Guild of Guardians.
It is a market segment within the decentralized finance (DeFi) ecosystem that combines blockchain technology with elements of game theory to increase interest in a particular blockchain project and deepen user’s relationship with a specific cryptocurrency.
Blockchain’s distributed data storage technology is the infrastructure f GameFi. Which can provide players with verifiable asset ownership and ensure the capital can be traded inside and outside.
The crypto research firm DappRadar reported over 800,000 daily unique active wallets across the GameFi market in August 2022. The industry is estimated to have a market cap of about $8 billion, a relatively small figure when compared with those of publicly traded video game companies.